Experts say that the Lebanese Central Bank’s circular allowing small depositors to withdraw their money from banks raised a glimpse of hope among economists in Lebanon.
The circular came following the unofficial capital control adopted by banks since months ago due to shortage in U.S. currency in the country.
The circular, which was issued earlier in April, allows depositors who own up to 3,000 U.S. dollars in their accounts to withdraw their money in Lebanese pounds at an exchange rate of 2,600 pounds per dollar, lower but close to that adopted in the parallel market, which has lately reached up to 2,900 pounds per dollar but not according to the central bank’s official exchange rate of 1,507 pounds per dollar.
The newly issued circular also allows people who have Lebanese pounds accounts of up to 5 million pounds to transfer their money to U.S. currency at the official rate of 1,507 and then sell their U.S. currency at the rate adopted in the market.
Prior to the circular, small depositors have been standing in lines to withdraw 100 dollars a week in a bid to avoid withdrawing their U.S. currency in Lebanese pounds at the bank’s official rate which would cause them to incur a loss of around 40 percent.
“This mechanism will allow small depositors to withdraw all their money at a rate higher than the official rate of the central bank which would compensate them for their previous losses as the value of their salaries in Lebanese pound dropped by 40 percent with the rise in dollar price,” Nassib Ghobril, head of the economic research department at Byblos Bank, told Xinhua.
Ghobril said that this mechanism will increase purchasing power of this segment of the population.
He noted that the central bank is also aiming to issue a circular to regular cash withdrawals by people who own higher than these amounts in their banks account.
“People should stop criticizing the central bank which is issuing circulars to fill the vacuum created by the cabinet which has delayed the implementation of necessary reforms to restore confidence in the system and attract fresh dollars to the country,” Ghobril said.
Financial Analyst Walid Abou Sleiman said this step is positive as it releases the money of small depositors, adding that he fears that these people will aim to buy dollars with their money which will further increase pressure on the Lebanese pound.
However, head of the Syndicate of Money Changers in Lebanon Mahmoud Mourad said that small depositors do not really need to buy dollars to store them in their houses like in the case of big depositors.
“Small depositors with such small bank accounts need to withdraw their money to buy their needs,” he said.
Meanwhile, Patrick Mardini, president of the Lebanese Institute for Market Studies, is not in favor of the circular since it gives small depositors their U.S. currency at 2,600 pounds per dollar instead of the real market rate of 2,900 which means that depositors will still lose around 10 percent of their money.
“This is some kind of a haircut for small depositors while others who have accounts higher than 3,000 U.S. dollars are currently losing 50 percent of their money value because they can only withdraw their money at the official rate of 1507,” he said.
The Central Bank Governor previously issued a circular aimed at forcing exchange shops to adopt the rate of 2,000 pounds per dollar.
However, most of the exchange shops are still selling the U.S. dollar at a higher rate.
“This is a very serious issue because this means that the central bank specified the exchange rate at 2,000 but then it allowed banks to give small depositors their money at 2,600 which means that the central bank does not have enough foreign reserves to be able to penetrate and control the parallel market rate,” Mardini said.
Lebanon has witnessed in the past few months a shortage in the U.S. dollars caused by economic slowdown and the drop in cash injections from Lebanese abroad, in addition to transfers by big depositors to foreign countries, reducing the central bank’s foreign currency reserves and leading to a shortage in dollar for businesses and individuals.
Hence, banks put restrictions on cash withdrawals by people and their transfers from Lebanese pounds to U.S. dollars creating panic among depositors.